Wednesday, May 18, 2011

Tough Day at the Market

Although my account finished at highs for the year today, it was a tough one for me.   If you follow me on Twitter, you probably know why.  

Last night, I posted a video about why I expected the market to put in a one or two day bounce here and some plays that could work in the very short-term.   There were quite a few that worked well from that video (QIHU - 5.5%, SREV - 5.9%, ACOM - 4.5%, AVL - 3.3%, PWER - 2.8%, LULU - 3.3%) and since I entered ACOM yesterday at $38.90, I can't complain too much I guess. 

This morning, however, I opened my twitter account and saw a tweet about the earning release for SODA. 

The beat stood out to me and I knew the chart, so immediately I knew that this was a good earnings opportunity - I could sense it.  I immediately put a limit order in the pre-market around $46.20.  For some reason, it didn't get filled, but after raising it, I got filled at $46.70.  As it acted well during the rest of the pre-market, I was pleased and planned on setting my stop around $46.25 which was the most recent high.  

SODA opened super-strong, shooting up to over $49 in the first few minutes of trading.  Nice.   Then over the next ten minutes, it gave all of that pop back, falling as low as $46.65.  In my experience, this is not good action.  

After stabilizing and trying to bounce right back up, the stock rolled over a bit and what turned out to be the low of the session was made about fifteen minutes later at $46.63.  Unfortunately, my stop was hit along the way at $46.70 and I was out for the day.  Sucks for me, because the chart below says it all.   Hopefully some of you were able to benefit and got in when I tweeted it this morning.

Chart from Telechart, Courtesy of Worden Brothers, Inc.

You may be asking "why was your stop at $46.70 instead of $46.25?".   Good question, and in answering I am hoping I can store away a lesson from this missed opportunity.  Basic problem - I deviated from my plan.   I added to the position at $48.22 as I really had a feeling that this was going to be a big winner.   I added a position that was just as large as the first.   This is called "greed" and it got the best of me. 

By adding to this position at the point I did (when the stock was falling intraday), my risk went up and therefore my tolerance for risk went down.   I fully expected a bounce back and for the stock to be strong, so when it hit the $46.70 level the first time and then recovered, I thought the run would take place and I moved my overall stop to right below that $46.70 level, figuring that if that was broken, then the trade really wasn't going to work.   Obviously I was wrong in this instance. 

With my full-time job, I have very few windows to keep tabs on the market during the day.  I have a break from about 9:30-9:45 that I can watch the market and manage positions if I need to and I can check it at lunch.   This affects my trading a bit because I have to use hard stops.   Perhaps if I was at my computer I could have just mentally stopped that area and go from there.   Oh well. 

I am sharing this experience to illustrate a key point in trading - have a plan and stick with it.   If you don't have a plan or deviate from the plan you establish, you can get yourself in trouble.  Your plans might sometimes not work, but they will likely do better than decisions you make off the cuff without proper thought put into them.  My plan was to put a stop at $46.25 and let it go from there.   If I followed the plan, I would be looking at a 15% one-day gain.  This is easy to say but sometimes harder to do, and today is a good example that even experienced traders like myself can make these mistakes.  

Maybe some other time I'll share my tough trade in REDF from 4/12/2011 - stopped out too early and then it doubled.   I am up 34% so far for the year and I can't complain too much, but it's usually one or two big trades that really can make your year as a trader, and now I feel like I've missed two of them.  Live and learn I guess.

Good luck Thursday -  the Nasdaq ran right into the levels I discussed yesterday around the short-term moving averages and volume was pathetic today (especially when you take out DELL's volume).   I will be looking to add some shorts back on soon unless the market can take out these levels tomorrow.  SLV, GLD, and USO all got rejected by their 9 day moving averages today as well so that's not bullish.   Remain careful and look to take profits soon on any longs you took today.   Take care.


Anonymous said...

Mac - How do you manage your account around these trades? Today you mentioned buying SODA in 2 tranches - how much will you typically dedicate to a single trade - meaning, as a % of your whole account?

Mac said...

That's a link to a former post and my strategies really haven't changed. I rarely have more than four or five positions. One way I can tell if I have two many is when I have to take more than a second to remember each ticker if I am checking them on Yahoo Finance or something like that.

Today I went into a bigger than normal position in SODA because a) I felt my risk was defined and small and b) I knew I wasn't going to be taking any other positions due to the questionable market.

Hope this helps.

Anonymous said...

very helpful - thanks again - the video yesterday was excellent by the way

Anonymous said...

Totally agree - have had the same thing happen multiple times lately, yo enter with a starter, add, maybe twice, then it reverses and you're in a lot of pain quickly. Still trying to work out how to play best when everything so choppy.